How to avoid getting into debt with finance

Warning: Late repayment can cause you serious money problems

For help, go to moneyadviceservice.org.uk

Representative APR

This article contains information about products/services offered by us as well as those that we do not offer.

Author: Internal 

People can so start to realise that getting into debt on loans and other types of finance can happen easily and at times quickly. Before people take out said finance they have to ask themselves a few quick questions to help their financial cause such as do they definitely need the finance in question and how much are they intending to borrow. They also have to select the correct lender to fund the loan and to make their original application through in the first place. They have to select one they can trust and one that can offer them good interest rates and can fund their required money in teh time frame they require. There are so many lenders to choose from and they each can offer a range of different things. In this article I am going to explain some things that may help people budget their finance better and therefore make their money go further and then also potentially it could avoid people from getting into debt.

It is always vital that a person understands their own affordability in a weekly or a monthly basis so they know how much money they have left each month after all their money bills are paid as well as their rent and other possible living expenses. They have to then calculate on a regular basis what disposable income they have each month and this could then be the MAXIMUM repayment that could be made if someone is applying for a loan. The best way to calculate this information would be to write down the income that person has on a piece of paper taking into account their wages, possible benefits or other income sources and then take off all that persons outgoings on a monthly basis to, the figure left after this has been done is known as the persons disposable income. If a customer then applies for a type of finance such as a possible short term or instalment loan then they know that whatever repayment is due on the account must then come from that disposable income figure. It is when that amount is quite low and they take out the loan anyway knowing that realistically it is not affordable, that problems occur. Failing to make any loan repayments can nearly always result in negative consequences for that person. People should therefore never look to apply for finance if they know definitely that is quite simply is not affordable them to manage as this is one of the most common ways someone can get into debt.

If finance is something that interests people as it does to so many of us make sure a type of loan is selected that suits your particular financial situation. I explained in the last paragraph about working out disposable income to see if a loan is affordable but that person involved should also select an option that they can manage consistently. People for example can take out a short term single instalment payday loan where they borrow a relatively small amount but then have to repay this back in full on their next payday, this means that with this loan type they have to clear that balance within a duration of thirty one days as the maximum and this is not always possible. If the amount due is missed then this loan balance can get bigger and bigger very quickly and will then not be affordable to manage in the future. When/if people do come to repay the loan they may find the amount due is so much it will not be affordable for them to clear in a single payment transaction. A commonly used alternative for the payday loan product would be the instalment loan. This is when a customer borrows a small amount or sometimes a large figure but then repays the loan back over a number of months and this is mutually agreed between the lender and borrower alike. For this product the customer is in control of their finance and this is very rarely the case. They can manage the money and make sure they do not fault on the agreement and end up in debt as they select a repayment term that they can be assured is affordable. They should though be aware all the time that the more length of time the loan is taken over, the more repayments that are made meaning more is repaid back in total.